Shares of Goldcorp Inc. (GG, Financial) were relatively flat Thursday following the Canadian mining company's announcement it produced the first gold in doré at Peñasquito's Pyrite Leach Project in Mexico. The share price of $9.43 at market close reflects a 0.84% dip from the previous close, but may rise over the next several days.
This news is very important for shareholders because the company expects the Pyrite Leach Project, at which commercial production will be reached before the end of the year, will add more than 1 million ounces of gold and about 45 million ounces of silver to the total production. That will be possible thanks to the recovery of approximately 42% of the silver and 35% of the gold that is currently sitting in the tailings as waste. The project improves the efficiency of operations during the processing of higher carbon sulphide ore.
The project will boost the production of a mine that contributed 33% of the company’s total revenue and 18% of total production with 476,000 ounces of gold in 2017.
Goldcorp is producing gold from the open-pit mine at Peñasquito, processing about 130,000 tons of mineral per day. For full-year 2018, Peñasquito is projecting production of 310,000 ounces of gold, or about 13.2% of Goldcorp’s total gold output guided for the entire year, at an all-in sustaining cost of $250 per ounce, which is one of the lowest in the mining industry.
Since Peñasquito has approximately 8.95 million ounces of gold in proven and probable reserves, I estimate the Pyrite Leach Project will cover about 15% of total future gold production from the Mexican mine.
Peñasquito's Pyrite Leach Project is a relevant step forward made by Goldcorp in its plan to deliver 20% growth in proven and probable mineral reserves through 2021. The company is also targeting a 20% increase in cash flow and AISC by 2021. Commodity permitting, the second part of the plan will also be accomplished through cost-saving initiatives.
In light of this achievement and a cheap market valuation, I would add Goldcorp to a portfolio.
Goldcorp decreased 26% for the 52 weeks through Nov. 29; its closing share price on Thursday was below the 200-, 100- and 50-day simple moving average lines.
The price was 11.6% above the 52-week low of $8.42 and 65.4% below the 52-week high of $15.55.
The price-book ratio is 0.6 versus an industry median of 1.74 and the EV-to-EBITDA ratio is 11.41 compared to an industry median of 9.3. The 14-day relative strength indicator of 47 suggests the stock is neither oversold nor overbought.
Goldcorp has a recommendation rating of 2.2 out of 5 and an average target price of $13.88 per share.
GuruFocus has assigned a financial strength rating of 5 out of 10 and a profitability and growth rating of 6 out of 10.
During the third quarter, Mario Gabelli increased his position by 0.19% to 54,070 shares while investment firm First Eagle Investment reduced its holding by 19.97% to 29,834,512 shares.
Disclosure: I have no positions in any securities mentioned in this article.
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